Judge Approves Final E-book Settlements

By Andrew Albanese
|

Dec 06, 2013

At a late afternoon hearing on December 6, Judge Denise Cote approved the final two publisher deals to settle charges of e-book price-fixing, and cleared the way for more than $166 million in refunds to begin flowing to consumer accounts.

In deeming the final state and consumer class settlements with Macmillan and Penguin "fair, adequate and reasonable," Judge Cote rested on largely the same findings she offered in approving the first three publisher settlements (involving Hachette, HarperCollins, Simon & Schuster) in February of 2013, although she noted that the final two publishers paid a premium for being the last to settle.

After the hearing, Texas state attorney Rebecca Fisher told PW that consumer refunds could now be issued, but not in time for the Christmas holiday season. It will take 30 days for Cote's final judgment to take effect, Fisher said, meaning that refunds will not hit consumer accounts until early 2014 at the earliest. After that, it will likely take another 15-30 days for the various retailers to disburse the settlement funds to consumers, possibly longer. At the hearing, Cote also approved the payment of legal fees.

Unlike the February 2013 hearing approving the first three settlements, in which no objectors or public commenters addressed the court, Friday's hearing began with an hour of back-and-forth with RoyaltyShare founder Bob Kohn, who had objected to the Macmillan and Penguin settlements, and asked the court for standing to appeal. (Another objector, Christopher Batman, Judge Cote noted, had withdrawn his objection.)

Cote listened patiently as Kohn, who is not a litigator, occasionally stumbled, and thanked Kohn for what she praised as well-reasoned arguments in his written briefs. However, she held that Kohn’s arguments were misplaced, and after a cordial, if at times strained discussion, she denied Kohn’s Motion to Intervene in the case, and said she doubted very much that he would be found to have standing to appeal the settlements.

In another twist, the states and consumer class attorneys had asked that if by some chance Kohn ultimately was ruled to have standing to appeal, that he be made to post a bond to cover any delay or additional costs associated with the disbursement of the settlement funds or any other fees. But after Kohn stipulated that he would not seek any delay in the distribution, or a “claw back” of any funds, the bond issue was tabled.

In his presentation to the court, Kohn pressed his argument that Cote had erred by not examining Amazon’s market power. He cited cases showing that price-fixing was not considered a per se violation of the Sherman Act if it was undertaken to address “inefficiencies” in the market, such as those caused by Amazon and its below-cost pricing.

Kohn did not dispute that the publishers engaged in a horizontal conspiracy, or that the result of the conspiracy was to raise e-book prices, unlike Apple, which in its defense has argued that e-book prices actually went down after the agency switch, an argument that Kohn colorfully labeled "crap."

Rather, Kohn argued, the publishers’ collusive actions were legally justified because they were pro-competitive in nature, serving to reduce Amazon’s 90% share of the e-book market to around 60%, and that consumers benefited from the agency switch because it made the e-book market more effiecient.

Kohn also argued that if he is not given standing to appeal, the settlements will not face any appeal scrutiny at all on behalf of consumers. Apple, which is appealing its own case, is not involved in the publisher settlements, he pointed out. And while the publishers surely agree with Kohn's view that their actions were legal, they are not about to challenge their own settlement deals.

Cote’s denial of Kohn’s Motion to Intervene puts his one-man crusade against the settlements at a procedural crossroad. The judge did not deal him a fatal blow from the bench, and he could continue to spend time writing and submitting briefs. But he now faces additional legal hurdles. Meanwhile, the settlements have been approved, and the funds will be disbursed.

According to Rust Consultants, more than 23 million consumer accounts will see refunds of as much as $3.06 per e-book for New York Times bestsellers purchased during the settlement, and $.73 per for non-bestsellers, although those amount could still be adjusted further.

Meanwhile, consumers could see another round of refunds at some point in the future. On July 10, 2013, Apple was found liable for its role in the price-fixing scheme with the publishers, and is currently litigating its potential money damages. Apple's damages trial is set for May of 2014, and a recent estimate from the plaintiffs put Apple's damages at nearly $308 million, which the judge could triple, putting Apple's high-end damage award at nearly $924 million.

Apple, continues to deny any wrongdoing, and has appealed Judge Cote's verdict in its price-fixing trial.

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